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Taking the long view

For the best part of 10 years, global markets have enjoyed a period of steady growth. 2018, however, saw markets ‘wake up’ to increased uncertainty on a number of key political and economic events.

Fuelled by the sustained efforts of central banks to maintain low interest rates and introduce measures such as quantitative easing (QE) to boost the economy, the decade following the 2007-08 financial crisis saw comparatively low market volatility and sustained economic growth.

More recently, however, we’ve seen volatility creeping back, thanks to the uncertainty created by global political tensions – notably between the US and China, a change of course by central banks to reverse their economic support measures following the financial crisis, and, closer to home, Brexit.

This uncertainty hit market sentiment and company earnings expectations and as a result, the UK equity market fell by 9.5% in 2018 and most stock markets experienced a negative return. In this environment, it’s natural to feel unsettled - whether you’re investing for your future or relying on the return from your investments for income now. But, when you consider how markets perform over the longer-term it becomes clear that the increased volatility in 2018 is not unusual. Taking the UK equity market as an example, looking back over almost a hundred years to 1926, the market ended with a negative return in around one in four calendar years. (This is also broadly true for US and global stock markets.)

Most of these 23 years of negative return saw the equity market falling by no more than 20%. There were a few years where there were losses of more than this but, importantly, there were far more years with gains of more than 20% a year. So, the odds of an exceptionally good return are far higher than the odds of an exceptionally poor return in any one year.

With this historical context in mind, what should we make of the markets in 2018? Well, simply put, every so often markets will fall. But while past performance is no guide to the future, historically, there have been far more good years than bad.

And, importantly, unlike the speculators who sell out in panic during these declines, the patience of those who remain invested is often rewarded with a return greater than the decline.

The price for seeking the growth that investing in markets can deliver is that sometimes the waters can become a little choppy. But, by staying invested, ensuring your investments are spread across a diverse range of assets and regions of the world and balanced to match your personal attitude to investment risk, we believe you stand the best chance to reach the goals you’ve set for your money.

The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.

Past performance is not a reliable indicator of future performance and should not be relied upon.